Over £70m was wiped from the value of Britain’s biggest insurance comparison websites on Thursday after reports that Amazon was in talks to launch a rival offering, sending shockwaves through the industry.
Experts say the prospect of Amazon launching an insurance price comparison site in Britain would be a "gamechanger" for the sector, which is dominated by web-based operators including GoCompare.com, Moneysupermarket.com and Confused.com.
The US technology giant is reportedly in talks with some of Europe’s biggest insurers to feature their services on the site. Any foray into insurance would represent a significant strategic move for the company and an effort crack into the UK’s lucrative financial services market. It would take it well away from its core existing businesses of retailing and entertainment.
Amazon’s proposal to offer insurance pricing on Thursday caused the big four comparison websites’ shares to temporarily collectively drop by £73m. They later recovered some ground.
Shares in GoCompare.com, whose main shareholder Sir Peter Wood agreed a £1.2 billion sale of his Esure business this week, dropped by 10.2 per cent. Moneysupermarket.com shares were down by much as 4.7pc. Admiral, which owns Confused.com saw their shares drop by as much as 2.4pc.
The plans to launch an insurance service are not thought to involve a tie-up with any specific insurance provider. It is unclear what type of insurance would be compared on the site. Amazon has declined to comment on the talks, which was first reported by Reuters.
"Amazon has a history of being very successful," Forrester analyst Olivia Berdak said. "Often it takes only an announcement from Amazon for stocks to fall and boards to start sweating."
The big four insurance comparison websites in the UK make up around 85pc of the market. In 2016, Forrester estimated their combined revenues at over £1 billion. Although the insurance comparison market is extremely profitable, the big four have done little to change their services in recent years, prompting speculation the sector is ripe for disruption.
"Amazon is very good at pursuing things and very deliberate in building an ecosphere that cocoons customers and means that they never have to leave their website,"Ms Berdak said.
Amazon’s huge audience, sophisticated technology and vast financial muscle would hand it big advantages. A push into insurance would also fit with Amazon’s strategy to allow customers to use their site to buy an increasingly wide variety of products.
The company already provides some limited insurance coverage on its platform when they are linked to product purchases, under its Amazon Protect scheme. The e-commerce giant also already offers debit cards to Prime users in the US – and it could use the same strategy to entice them to buy insurance products, Ms Berdak said.
The group often offers discounts on financial products to Prime customers.
"A lot of US consumers who have an Amazon-branded debit card went for it because they could get a discount on Prime membership."
This is not the first time that a tech giant has threatened to wade into the insurance industry. Google launched Google Compare in the US and the UK in 2015 to provide car insurance prices. The service was discontinued a year later after it failed to drive revenue.
Analytics company GlobalData said that the popularity of comparison sites was driven by customers hunting for the best deal. There is little evidence of long-term loyalty from their customers, with comparison sites fighting for brand dominance mainly through advertising.
Amazon could bring much-needed innovation to the aggregator market, GlobalData insurance analyst Danielle Cripps said.
Some insurers could use this to build their relationship with Amazon further, adding insurance skills to Alexa or using Amazon’s marketplace of products such as smart home devices or wearables to further their product offerings, she added.
Last year the Competition and Markets Authority found that the majority of consumers in the UK have used a comparison website, and that they often use more than one to make a decision.
In a report, the CMA laid down clear ground rules for all sites on issues such as communicating how they plan to use personal data and display information such as price and product description.
Amazon’s potential investment comes amid outcry over its tax payments in the UK. It was revealed earlier this month that Amazon paid less corporation tax in the UK in 2017 even as it increased revenues and profits from its operations.
The company’s UK logistics arm, Amazon UK Services, paid just £4.6m in tax in the year ending December 2017, down from £7.4m the previous year, according to a filing on Companies House.
Amazon said it pays all taxes required in the UK and in every country it operates. Since 2015 it has had a branch of its EU business in the UK to pay taxes on retail profits.